BA chief says Iberia deal won't raise fares

Iberia, meanwhile, on Friday reported a euro16.4 million ($24.5 million) loss for the third quarter, compared to a profit of euro30.4 million a year earlier. The Spanish carrier is also stripping out costs with a plan to freeze hiring through 2012, freeze salaries in 2010 and 2011 and offer early retirement for flight attendants over 55.

The airlines expect the merger to save them a total of euro400 million a year, synergies that Killik & Co. head of equities Jonathan Jackson said were slightly better than expected. "Although these benefits are not expected to be fully delivered until the fifth year after completion, they will go a long way to restoring confidence in the profitability and sustainability of the airlines," Jackson said.

"I would characterize it as two drunks ... holding each other up on the way home," O'Leary told CNBC. "All you get when you put two high-fare, loss-making airlines together is even higher fares and even bigger losses."

The BA-Iberia merger follows 16 months of sometimes fraught negotiations that stumbled over issues including the proposed structure of the merged company and BA's large pension fund deficit.

The two companies said that neither Iberia nor TopCo would provide any guarantee or use any cash or credit facilities to fund BA pensions. Iberia also reserves the right to pull out if it is not satisfied with any deal that British Airways makes with the administrators of its deficit-ridden pension fund.

There has only been one other merger of this kind – the tie-up between Air France and KLM.

BA also held talks with Australian airline Qantas Airways Ltd. last year about a potential merger, but the discussions ended in December after the pair failed to agree.